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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:- This appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Chennai, dated 21.08.2017 in for the assessment year 2012-13 passed U/s.250(6) r.w.s. 143(3) of the Act.
2 The Revenue has raised several grounds in its appeal however the cruxes of the issue are that (i) The Ld.CIT(A) has erred in allowing the entire claim of deduction U/s.10AA of the Act amounting to Rs.1.05 crores without taking into consideration of the unabsorbed depreciation loss suffered by the other units of the assessee. (ii) The Ld.CIT(A) has erred in deleting the disallowance made by the Ld.AO amounting to Rs.35,857/- U/s.14A r.w.r 8D of the Rules.
The brief facts of the case are that the assessee is a private limited company engaged in the business of development & export of software & providing IT enabled services, filed its return of income for the assessment year 2012-13 on 25.09.2012 admitting loss of Rs.1,28,26,920/-. The case was selected for scrutiny under CASS and notice was issued U/s.143(2) of the Act on 19.08.2013. Finally assessment order was passed U/s.143(3) of the Act on 27.02.2015 wherein the Ld.AO disallowed the claim of deduction U/s.10AA of the Act, U/s.14A of the Act, U/s.40a(ia) of the Act & further disallowed expenditure incurred towards software license fee. However the issue in appeal before us is towards disallowance of deduction U/s.10AA of the Act and addition invoking the provisions of Section14A of the Act r.w.r 8D of the Rules.
Ground No.2(i): Disallowance of deduction U/s.10AA of the Act:- The assessee had claimed deduction U/s.10AA of the Act from the income computed in accordance with provisions of Chapter IV of the Act. However the Ld.AO placing reliance in the circular of the Board No.7 dated 16.07.2013 was of the view that the income of the assessee has to be computed with in accordance of provisions of Chapter IV & VI of the Act and thereafter deduction U/s.10AA of the Act has to be allowed, which means that “first the income/loss from various sources i.e. eligible and ineligible units, under the same head are aggregated in accordance with the provisions of section 70 of the Act.
Thereafter, the income from one ahead is aggregated with the income or loss of the other head in accordance with provisions of section 71 of the Act. If after giving effect to the provisions of section 70 and 71 of the Act there is any income (where of the Act) and the same is eligible for deduction in accordance with the provisions of Chapter VI-A or section 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee.”
Accordingly the Ld.AO disallowed the claim of deduction U/s.10AA of the Act for Rs.1,05,44,367/-. On appeal, the Ld.CIT(A) relying in the decision of the Hon’ble Apex Court in the case CIT vs. M/s. Yokogawa India Ltd., Civil Appeal No.8498 of 2013 dated 16.12.2016, allowed the claim of deduction U/s.10AA of the Act by holding as under:-
“The Hon’ble Supreme Court in the case of Yokogawa (supra) has held that deductions contemplated u/s.10A are to be determined for the eligible undertaking of the appellant standing on its own and without reference to other eligible undertaking of the appellant standing on its own and without reference to other eligible or non-eligible units or undertaking of appellant (paragraphs 16 and 17 of the said judgement). In view of the above, this ground of appeal of the appellant is allowed.”
4.1 Before us the Ld.DR relied on the order of the Ld.AO while as the Ld.AR relied on the order of the Ld.CIT(A) and the decision of the Hon’ble Apex Court cited supra.
4.2 We have heard the rival submissions and carefully perused the materials on record. After perusing the order of the Hon’ble Apex Court in the case M/s. Yokogawa India Ltd cited supra, we find that the submission of the Ld.AR is of merit. The Hon’ble Apex Court in the decision of the case M/s. Yokogawa India Ltd cited supra has held as follows:
“16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, “The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.”
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’.
For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.”
Since the Ld.CIT(A) has allowed the appeal of the assessee by following the ratio laid down by the decision of the Hon’ble Apex Court cited supra, we do not find any infirmity in the order of the Ld.CIT(A).
Hence we hereby uphold the order of the Ld.CIT(A).
Ground No.2(ii) : Disallowance U/s.14A r.w.r. 8D of the Rules:- During the course of scrutiny assessment, it was observed by the Ld.AO that the assessee company has invested an amount of Rs.71,71,317/- for earning exempt income. Therefore the Ld.AO invoked Rule 8D of the Rules and made disallowance of Rs.35,857/-. On appeal the Ld.CIT(A) held the issue in favour of the assessee.
5.1 We have heard the rival submissions and carefully perused the materials on record. At the outset we find that the Ld.AO has not made any finding that the assessee had incurred expenditure for earning exempt income. When there is no such finding by the Ld.AO, invoking of the Section 14A r.w.r 8D of the Rules is not appropriate. Therefore we hereby direct the Ld.AO to delete the addition made by invoking Section 14A r.w.r. 8D of the Rules.
In the result the appeal of the Revenue is dismissed.
Order pronounced on the 16th April, 2018 at Chennai.